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Business Contracts: tips on provisions every contract should have

Written by: Chad William Koplien

Reputation Level 12

Business Contracts

Posted over 3 years ago. 46 helpful votes, 1 comment

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Venue and Arbitration clause

Litigation costs money. Lots of money. Attorneys are split on whether arbitration is less costly than civil litigation in today's environment, and in my view, it depends on the facts. The bottom line, in my view, is that you will have a friendlier audience in arbitration if you use the a Section of the AAA that is specific to your industry, and you will avoid the risk of a runaway jury. Also, an arbitration clause may help with collection, as many lawyers will not take on the smaller cases with this type of clause – thus, this may serve as a disincentive for a party to your contracts to litigate, and an incentive to pay. Make sure your contract designates that the venue (county in which lawsuits are filed) are in the county where your business is located.

Attorney Fee/Costs of Collection Clause

This provision is risky if your work, products or services have the chance to be defective in any way. However, it is excellent if you are dealing with a deadbeat. What it does is that it obligates the losing party to any dispute to pay the attorneys' fees of the victorious party. This provision creates a huge potential of risk to a party to your contract who is refusing payment or compliance with the terms of the contract. In my view, this is the granddaddy clause of them all when it comes to discouraging nonpayment or noncompliance from parties to your contracts. To those business owners who have a past history of allegations of substandard products, services or defective work, this clause should not be used.

Confidentiality Clause

A confidentiality clause is an important clause to have due to the consumer advocacy nature of the news media and the emergence of the Internet as a means for quickly spreading news and information. The news media is typically unsympathetic to business owners, and can destroy a company based on negative media attention. I strongly recommend that your contracts have a confidentiality clause which prohibits either party from reporting a dispute to the media or third parties.

Additional Resources

These are the essential clauses you should have in your standard contract. You should also beware that contracts are not "one size fits all," and you should have a customized contract specific to the type of business that you do. Also, as mentioned above, some consumer statutes and other laws may prohibit one or more of the clauses referenced above. If there is one idea you take from this guide – it is this – spend the time and money to draft a quality contract that you can use with your business customers, vendors and suppliers. There is no better way to ensure payment and enhance collection efforts than through a quality contract that has payment incentives with teeth in it to protect you in the event of a defaulting owner. Tip: conduct an Internet search for additional articles and information on this subject.

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